Before the House Committee on Ways and Means, Subcommittee on Health
February 13, 1997

INTRODUCTION

Mr. Chairman, I am pleased to have the opportunity to present the Administration's plan for
modernizing Medicare. I am enthusiastic about the initiatives we have undertaken to ensure
that Medicare is strengthened for the 38 million Americans who depend upon it, offers the best
possible medical care, and enters the next century in robust condition.

We think it is important to put a human face on the equation and to be fully aware of the serious
impact such proposals would have on Americans least able to bear these additional cost burdens.
Although only 10-12% of Medicare beneficiaries fall below the Federal poverty line, nearly 75%
have incomes below $25,000. [CHART #I] Medicare is often described as a middle-class benefit,
but beneficiaries are middle class precisely because they have Medicare. Recent data indicates
that the elderly already spend a formidable 2 1 % of their income on health care, compared to 8%
spent by the non-elderly.[CHART #2]

The Medicare provisions in the president's FY 1998 Budget have two p goals: (1) to extend the
life of the Medicare Trust Fund into the next decade, which will contribute to reduction of the
deficit; and (2) to modernize Medicare. Through sound judgment and careful planning, we can
guarantee that the Medicare program of the future will continue to provide the same protections
to the elderly and disabled as it does today.

EXTENSION OF MEDICARE SOLVENCY INTO 2007

Under present law, the Hospital Insurance (M) Trust Fund would be depleted early in 200 1,
based on the Board of Trustees' intermediate estimates. The President's budget proposals would
extend the life of the Trust Fund by another 6 years. It would provide adequate financing
through the next 10 years, leaving us time to tackle imminent fiscal problems precipitated by
retiring baby boomers. Savings would be achieved through a combination of scored savings
from reductions in payments to hospitals, home health agencies, skilled nursing facilities,
managed care plans, and other providers. As was proposed in the previous two balanced budget
initiatives, it would permanently extend the 25 percent Part B premium. Finally, the liability
associated with some home health services would be reallocated to the Part B side of the
program.

Moderating Medicare's Rate of Growth

The President's budget includes explicit proposals to achieve $100 billion in savings over the
next 5 years. Medicare per capita spending growth over the next five years (1997-2002) will
slow from the current projected gross rate of 7.4% to 5.3%. In 2002, this will lower our average
per capita spending from $7,800 to $7, 100. These savings come from substantial reductions in
payments to providers.

Hospitals - We propose a series of hospital savings proposals, including a reduction in the
hospital PPS update of 1.0 percentage point each year to account for increases in productivity,
reinstatement of the reduction in capital payments from OBRA 90, reforms to the direct payment
for medical education to reduce the growth of hospital-based residents and encourage more
training in primary care, and reductions in the indirect medical payment to more closely reflect
the cost of teaching activities. In addition, we propose to use a more up-to-date base year in
calculating payments to PPS-exempt hospitals, to set ceilings and floors for these hospitals'
target rates, and to reduce the annual update to payments and cut capital payments for
PPS-exempt hospitals. We also propose a moratorium on new long-term care hospitals and to
move to a PPS for hospital outpatient department services. Overall, these proposals result in $33
billion in savings from hospitals over 5 years.

SNF and Home Health - As I will describe in detail later, we will be moving to case-mix adjusted
prospective payment systems for these providers. These payment systems will incorporate
payment reductions equal to $7 billion for SNFs and $14 billion for home health agencies
(HHAs) over five years.

Managed care - Through a series of policy changes, the plan would address the flaws in
Medicare's current payment methodology for managed care. Specifically, the reforms would
create a national floor to better assure that managed care products can be offered in low payment
areas, which predominantly rural communities. In addition, the proposal includes a blended
payment methodology, which combined with the national minimum floor, would dramatically
reduce geographical variations in current payment rates. The plan would reduce reimbursement
to managed care plans by approximately $34 billion over 5 years. Savings will come from three
sources: (1) Because HMO payments are updated based on projections of national Medicare per
capita growth, when the traditional fee-for-service side of the program is reduced, HMO
payments are reduced; (2) The carve-out of the medical education and DSH payments from the
HMO reimbursement formula (these funds will be paid directly to academic health centers); and
(3) A phased-in reduction in HMO payment rates from the current 95% of fee-for-service
payments to 90%. A number of recent studies have validated earlier evidence that Medicare
significantly overcompendated HMOs. A recent HCFA study has validated earlier findings by
Mathematica Policy Research that Medicare overpays HMOs. The reduction does not start until
2000 and it accounts for a relatively modest $6 billion in savings over 5 years.

Physicians - We propose to establish a single conversion factor for payments under the physician
fee schedule and to reform the method for updating physician fees. By creating incentives to
control physician services in high-volume inpatient settings and to make a single payment for
surgery where an assistant-at-surgery is used, costs will be reduced. We also propose to expand
the settings in which direct payment is made to physician assistants, nurse practitioners and
clinical nurse specialists to include home and ambulatory settings. Medicare currently does not
have an expansive outpatient drug benefit, though there is coverage of certain kinds of outpatient
drugs. Our proposed plan will eliminate the mark-up charged by physicians and suppliers,
limiting payments to acquisition costs subject to a limit. In addition to eliminating the current
statutory x-ray requirement to determine the need for a service, we also propose to improve
access to chiropractic services. These proposals will result in savings of $7 billion over 5 years.

Fraud and Abuse

The President's budget contains a number of proposals to reduce waste, fraud and abuse in the
Medicare program. Among these proposals are provisions to require that insurance companies
report the insurance status of beneficiaries, to guarantee that Medicare pays appropriately. In
addition, we have several proposals to prevent excessive and inappropriate billing for home
health services. We are proposing to close a loophole in the current payment calculation by
payments to the location where care is actually provided, rather than the billing location. When
we implement the PPS, we will eliminate HHA periodic interim payments (PIPs), which were
originally established to encourage to join Medicare by providing a smooth cash flow. Since
over 100 new agencies join Medicare each month, inducements are no longer needed. We will
develop more objective criteria for determining the appropriate number of visits per specific
condition, so that we can prevent excessive utilization.

Finally, the President's budget calls for the repeal of several provisions in the HIPAA that could
hamper our ability to fight fraud and abuse. First, the President is proposing to eliminate the
broad new exception to the anti-kickback statute when providers are at "substantial financial
risk." These terms are undefined and somewhat broad. Additionally, the Congressional Budget
Office assigned a cost to this provision because it could be easily abused by those wishing to
profit from referrals. Second, the President is proposing to eliminate the requirement that
advisory opinions be issued in response to specific requests as to how certain business
arrangements may or may not be considered to violate the anti-kickback laws. This provision
will hamper the government's ability to prosecute fraud and is impractical because it is difficult,
if not impossible, to determine intent based on the submission of the requester. Third, the
President is proposing to reinstate the "reasonable diligence" standard. HIPAA eliminated the
current standard for use of reasonable diligence and made providers subject to civil monetary
penalties only if they act with deliberate ignorance or reckless disregard.

I - PRUDENT PURCHASING

As more beneficiaries are choosing to enroll in managed care, there has been a lot of talk about
fee-for-service being the "residual," as though it were somehow not important. We must
recognize that even if we double the rate at which beneficiaries are moving into managed care in
the short-term, the majority of beneficiaries will still be in fee-for-service. Therefore, we need to
look for ways to improve our purchasing power. Over the past several years, private sector
purchasers of health services have developed a variety of innovative ways they pay for health
services. It is ironic that HCFA, the largest purchaser of health services in the U.S., has often
been shackled by outdated statutory payment and administrative pricing provisions, which
prevent us from adapting to today's marketplace.

Beneficiary-Centered Services - Given the pressures on the federal budget, it is critical that
Medicare look beyond traditional purchasing strategies and scan the private industry horizon
for new ideas. HCFA's "Beneficiary-Centered Purchasing Initiative" proposals do just that,
applying lessons learned from the private sector and our demonstrations. With these proposals,
we will have innovative purchasing arrangements which will be powerful tools to control
Medicare spending now and in the future.

For example, under our "Centers of Excellence" demonstration, Medicare achieved an average
of 12 % savings for coronary artery bypass graft procedures performed, with no reduction in
quality. Despite this success, we do not have the authority to make the Centers of Excellence
program a permanent part of Medicare. Similarly, while other purchasers of health care
services are successfully using disease and case management services to selectively provide
services for enrollees with specific conditions (e.g. diabetes, congestive heart failure), we do
not have this kind of authority under Medicare fee-for-service. The Office of Inspector General
reports indicate that Medicare is paying far more for medical supplies and DME than other
federal purchasers such as the Department of Veterans Affairs. Nevertheless, Medicare lacks
authority to use competitive bidding to establish payment rates. I urge Congress to re-examine
these issues and give the Medicare program the flexibility to pay on the basis of special
arrangements, as opposed to statutorily-determined, administered prices.

Post-acute Services - Expenditures for skilled nursing facility (SNF), home health, rehabilitation
and long-term hospital services are among the fastest growing components of Part A, and, total
Medicare spending. These services are often referred to as "post-acute care services," even
though in some cases these services are delivered without a prior hospital stay. The increase in
expenditures for post-acute care is due to demographic changes and improvements in the delivery
of medicine that allow more care to be delivered in non-hospital settings. In addition, our
prospective payment system for hospitals provides the incentives for hospitals to discharge
patients more quickly, which also fuels the growth in post-acute care spending. Further,
discharges to post-acute care providers may cause Medicare to pay twice for care -- once for the
initial hospitalization, and again for care in the post-acute settings.

The President's budget includes a proposal to end these double payments. We propose to limit
the definition of a discharge, fory a prospective rate based upon the characteristics of the
patients it serves, not on how many services it provides. Because we cannot continue to allow
expenditure growth at current levels, we are proposing to implement additional cost limits until
we can implement this prospective payment system. Effective FY 1998, we will reduce the
current cost limits and introduce a new per beneficiary per year limit. The Administration is
proposing a series of policy changes to prevent excessive and inappropriate billing for home
health care services, which are described earlier.

In addition, the Administration is also proposing to reallocate some of the home health
financing to Part B to restore the post-acute care nature of Part A. Data from our Medicare
Beneficiary Survey indicate that home health care plays a significant role in the ability of many
elderly to continue to live at home: 1 in 3 home health users live alone, and 4 in 10 have
incomes below $10,000. Under the Administration's proposal the first 100 visits following a
three-day hospital stay would be reimbursed under Part A, just as this program covers 100 days
of skilled nursing care following a hospitalization. All other home health care (visits beyond 100
and those not following a hospital stay) would be paid under Part B. Prior to OBRA 80, the
Part A portion of the home health benefit was limited in this way. OBRA 80 legislation
eliminated the three-day hospitalization requirement and the Part A and Part B visit limits, and in
y a prospective rate based upon the characteristics of the
patients it serves, not on how many services it provides. Because we cannot continue to allow
expenditure growth at current levels, we are proposing to implement additional cost limits until
we can implement this prospective payment system. Effective FY 1998, we will reduce the
current cost limits and introduce a new per beneficiary per year limit. The Administration is
proposing a series of policy changes to prevent excessive and inappropriate billing for home
health care services, which are described earlier.

In addition, the Administration is also proposing to reallocate some of the home health
financing to Part B to restore the post-acute care nature of Part A. Data from our Medicare
Beneficiary Survey indicate that home health care plays a significant role in the ability of many
elderly to continue to live at home: 1 in 3 home health users live alone, and 4 in 10 have
incomes below $10,000. Under the Administration's proposal the first 100 visits following a
three-day hospital stay would be reimbursed under Part A, just as this program covers 100 days
of skilled nursing care following a hospitalization. All other home health care (visits beyond 100
and those not following a hospital stay) would be paid under Part B. Prior to OBRA 80, the
Part A portion of the home health benefit was limited in this way. OBRA 80 legislation
eliminated the three-day hospitalization requirement and the Part A and Part B visit limits, and in
so doing made Part A responsible for almost all of the financing of home health. The restoration
of non-post acute visits to Part B makes the home health benefit consistent with the Medicare
statute's original intent and its division of services between Part A and Part B.

Contractor Reform - While modernizing our payment methods for purchasing health care
services for beneficiaries is an essential step toward modernization, we must modernize the way
we purchase administrative services. The President's budget contains a proposal that would end
the requirement that all Medicare contractors (that is, carriers and intermediaries) perform all
Medicare administrative activities. It gives HCFA the tools to take advantage of innovations and
efficiencies in the private sector when it comes to utilization review, beneficiary and provider
services, and claims processing. It builds upon the authority granted in the Health Insurance
Portability and Accountability Act (HIPAA), where payment integrity activities (such as audits)
could be separately contracted. This provision also would allow us to use the same competitive
requirements that apply throughout the government when awarding new contracts, and expand
our pool of potential contractors beyond insurance companies to other entities that may be
well-qualified to do the work.

2 - MODERNIZING MANAGED CARE CHOICES

Under our Medicare Choices initiative, we would expand managed care options, provide
beneficiaries with comparative information on all of their health care choices, ease comparison
among options by increasing standardization of benefits, provide a coordinated open enrollment
period and other open enrollment opportunities and institute Medigap reforms. Let me address
each of these components separately.

Expanded Managed Care Options - Currently, HCFA can contract with Health Maintenance
Organizations (HMOs) and Competitive Medical Plans (CMPs) to serve as Medicare managed
care plans. The Administration believes that Medicare beneficiaries should have more managed
care choices, comparable to those available in the private sector. Thus, the President's budget
would expand managed care options to include Preferred Provider Organizations (PPOs) and
Provider Sponsored Organizations (PSOs). We believe that direct contracts with alternative
managed care models such as PSOs are the key to expanding managed care to rural areas.

Comparative Information - Under current law, beneficiaries may obtain comparative information
on Medigap options through State Insurance Counseling Grant Programs. Some of these
programs also address managed care options. There are no mechanisms, however, to
ensure that beneficiaries are aware of all their options, in both managed care and Medigap.
Under the President's budget, the Secretary will develop and provide comparative information
to beneficiaries on all managed care plans and Medigap plans in the area. This information will
be used by State Insurance Counseling Grant Programs to assist beneficiaries in understanding
their coverage options. The costs of preparing and disseminating this information and
supporting the State Counseling Grant Program will be financed by the Medigap and managed
care plans.

Standardized Benefits - While comparative information will be helpful to beneficiaries, making
an informed decision among the array of available coverage options would be hampered unless
differences in benefit packages are addressed. Under the President's budget, the Secretary win
establish standardized packages for certain additional benefits offered by managed care plans.
For example, if the Secretary established a standardized package for outpatient prescription
drugs, plans could offer enrollees this benefit only according to the structure established by the
Secretary. The development of standardized additional benefit packages will make it possible
for beneficiaries to compare these benefits on the basis of cost and quality. The National
Association of Insurance Commissioners (NAIC) will also review the current standard Medigap
packages to see if changes could be made to ease comparison with the standard managed care
benefits.

Open Enrollment Opportunities - Under Federal law, aged individuals have a once in a
life-time opportunity to select the Medigap plan of their choice when they first join Medicare at
age 65; individuals who become eligible for Medicare because of a disability or end-stage renal
disease beneficiaries have no such choice. If a beneficiary enrolls in a managed care plan and is
later dissatisfied, he or she may not have the opportunity to select the Medigap plan of his or
her choice; for example, drug coverage may be unavailable due to the individual's poor health
status. As a result some beneficiaries are reluctant to try managed care or are fearful of being
locked into managed care options with no opportunity to return to fee-for-service and Medigap.

The President's budget gives all new beneficiaries, not just aged beneficiaries, the opportunity to
choose the managed care or Medigap plan of their choice when they first enroll in Medicare. In
addition, each year all Medigap and managed care plans will have to be open for a one month
coordinated open enrollment period. Additional open enrollment opportunities will be available
under certain circumstances -- such as, when a beneficiary's p care physician leaves a plan or
when a beneficiary moves into a new area. While the concept of coordinated open enrollment is
not new and was included in the 1995 Conference Agreement, the key difference in our proposal
is the inclusion of Medigap plans.

Other Medigap Reforms - In addition to addressing open enrollment, there are other Medigap
reforms included in the President's budget. We would like to eliminate the ability of Medigap
insurers to impose pre-existing condition exclusion periods. Under the policy in the President's
budget, a Medigap plan cannot impose an exclusion period for a beneficiary who has recently
enrolled in another Medigap plan, Medicare managed care, or employer-based plan. This is
similar to the policy included in a bi-partisan bill introduced by Mrs. Johnson and others during
the last session and we look forward to working together toward enactment this year.

Our final Medigap reform addresses rating. There are currently no federal requirements
regarding the rating methodology used by Medigap plans. As a result, plans can use low
premiums to entice beneficiaries to enroll in their fledgling stages, but as the company matures it
raises the premiums to unaffordable levels. Under the President's budget, Medigap plans would
be required to use community rating to establish premiums. The movement to community rating
would be subject to a timetable and transition rules developed by the NAIC. Given that managed
care plans are required to charge all enrollees the same premium Medigap plans should not be
allowed to charge differential premiums based on age. Also, if choice is an important goal then
premium structures such as attained age rating, which in effect make Medigap unaffordable as
beneficiaries age, should not be allowed.

3 - PREVENTIVE CARE

One of the core elements of our restructuring agenda is modernization of Medicare's coverage of
preventive care. The cost-effectiveness of illness prevention is well-known; in the long run,
preventive medicine pays for itself The President's budget would make some significant
improvements in the area of preventive benefits. I would note that there is a bipartisan consensus
on many of these proposals as indicated by the similarities between our initiatives and legislation
sponsored by Chairman Thomas, Mr. Cardin and Mr. Bilirakis. We look forward to working
with you to enact these new benefits:

Colorectal Screening Coverage - Colorectal cancer is the second most common form of cancer in
the U.S. and has the second highest mortality rate. Yet, despite the demonstrated importance of
early detection, Medicare does not pay for procedures used to detect colorectal cancer when used
as a screening tool. The President's budget would provide such coverage, thereby increasing the
possibility of early detection and treatment of colorectal cancer.

Mammography Coverage - Forty-eight percent of new breast cancer cases and 56 percent of
breast cancer deaths occur in women age 65 and over. For this reason, the early detection and
treatment of breast cancer is a high priority for HCFA. Although Medicare covers both
screening and diagnostic mammography, only 40 percent of all eligible beneficiaries over age 64
(excluding those in managed care) received a mammogram in the two-year period from 1994
through 1995. In addition, only 14 percent of eligible beneficiaries without supplemental
insurance received mammograms during the first two years of the screening mammography
benefit, which began in 1991.

The President's budget expands coverage for screening mammograms to provide for an annual
mammogram for women age 65 and over. This is consistent with the recommendations of most
major breast cancer authorities. The budget also proposes to waive cost-sharing for mammogram
services in order to encourage their use.

Expanded Benefits for Diabetes Outpatient Self-Management Training and Blood Glucose
Monitoring - The third area where we propose to make investments is in services for
beneficiaries with diabetes. Under current law, Medicare covers diabetes outpatient self-
management training only in hospital-based programs, and covers blood glucose monitoring
(including testing strips) only for insulin-dependent diabetics. The President's budget would
expand coverage of diabetes outpatient self-management training to non-hospital-based
programs, and expand coverage of blood glucose monitoring (including testing strips) to all
diabetics.

Preventive Immunizations - Current law provides payment for the administration of pneumonia,
influenza, and hepatitis B vaccines, and already waives payment of coinsurance and the Part B
deductible for pneumonia and influenza. The President's budget increases payment amounts for
the administration of all three types of vaccines, and waives payment of coinsurance and
applicability of the Part B deductible for the hepatitis B vaccine. These measures will improve
access to adult vaccinations and make the cost-sharing waiver consistent for all covered vaccines.

Reform Beneficiary Coinsurance for Hospital Outpatient Department Services - Coinsurance for
Part B services is generally based on Medicare's payment amount. However, for certain
outpatient department services (OPDs), coinsurance is a function of hospital charges, which are
significantly higher. In addition, as a result of a flaw ("formula-driven overpayment") in the
statutory formula determining Medicare's payment for certain OPD services, hospitals have had
an incentive to increase their charges. The net effect of charge-based coinsurance and hospitals'
increases in their charges is that in 1998, without a change in law, beneficiaries will pay an
effective coinsurance rate of 46 percent for OPD services rather than the 20 percent for other Part
B services. This effective coinsurance rate is expected to increase to 52 percent by 2007.

The President's budget proposes the establishment of a prospective payment system (PPS) for
OPD services in 1999. Total payments to hospitals for OPD services will be established so as
to equal total payments that would otherwise apply, minus the effect of the formula driven
overpayment. This also assumes the extension of certain OPD policies included in OBRA 93
that are slated to expire in 1999. Coinsurance will be reduced starting in 1999 using the savings
from the formula-driven overpayment. It would also be gradually reduced in subsequent years .
until it equals 20 percent in 2007.

Part B Enrollment and Premium Surcharge - Under current law, with certain exceptions,
beneficiaries who do not enroll in Part B when they are first eligible can enroll subsequently only
during an annual open enrollment period from January to March of each year, with coverage
effective in July. In addition, for each year that they could have enrolled in Part B but did not,
they face a 10 percent premium surcharge. While for most beneficiaries the surcharge is in the
20- 30 percent range, some beneficiaries face a surcharge of 150 percent or more -- an amount
which is punitive rather than bearing any relationship to the cost to Medicare of late enrollment.

In recent years, flaws in this enrollment process and inequities in the premium surcharge have
become obvious. Beneficiaries who never enrolled in Part B due to availability of other coverage
have attempted to enroll after their circumstances changed. For example, beneficiaries may have
not have enrolled in Part B because they had generous retiree coverage through their former
employers. Years later, however, they were informed that the former employer was now
requiring Part B enrollment or was dropping coverage entirely. There are also situations where
military retirees did not enroll in Part B because they could obtain physicians' services through a
clinic at the military base near their home. Then, years later, the closing of their base
necessitated Part B coverage.

The President's budget replaces the annual general enrollment period for Part B with a
continuous open enrollment period. Beneficiaries will be able to enroll in the program at any
time, with coverage beginning six months after enrollment. Also, the Part B premium surcharge
for late enrollment will be revised based on the actuarially determined cost to Medicare of late
enrollment. This provision will provide substantial relief to thousands of beneficiaries.

5- PROGRAM IMPROVEMENTS

Respite Benefit - The President's budget creates a respite benefit, beginning in FY 1998. This
much-needed benefit will provide up to 32 hours of care each year for beneficiaries suffering
from Alzheimer's and other irreversible dementia. Respite care may be provided at home or at a
day-care facility, and will serve to ease the emotional "burnout" that is commonly experienced by
primary caretakers,
especially when they are family members. In the spirit of the Administration's efforts to improve
the quality of family life, this benefit is an important step toward a community- and
family-centered approach to health care.

Social Security Disability Demonstration - Lack of health coverage is often a barrier to the
disabled in their efforts to go back to work, since after a transition period they are ineligible to
receive premium-free Medicare Part A coverage. The Social Security Disability Insurance
demonstration (SSDI) will allow certain SSDI beneficiaries to receive premium-free Part A
coverage for up to four additional years.

6 - INTEGRATED QUALITY MANAGEMENT

The President's budget will provide authority for HCFA to develop an integrated ospital program to all 50 states. To ensure that the 10 million Medicare beneficiaries living in
rural areas do not become second-class citizens in terms of access to health care, our plan updates
the payment for Sole Community Hospitals, improves the Rural Referral Center program and
reinstates the Medicare Dependent Hospital program to provide resources to those rural hospitals
that need it most.

CONCLUSION

We have looked beyond the immediate concerns of budget reductions and sought to keep our
sights on the long-term goal which is safeguarding the vitality of the Medicare program. As our
Nation evolves into a society with greater numbers of the elderly and we must preserve Medicare
as a strong and vital program. The President's budget modernizes Medicare, extends the
solvency of the Hospital Insurance Trust Fund for ten years, reduces the rate of growth in
Medicare spending, and contributes to a balanced budget in 2002. It is essential that we protect
Medicare, and our payment reforms and strategies will ensure that Medicare continues to be a
sound investment in our Nation's health security for years to come.

Mr. Chairman, many of these reforms are initiatives that you, too, have championed. We look
forward to working with you, Mr. Rangel, Mr. Thomas, Mr. Stark, and all the Members of the
House Ways and Means Committee to further strengthen and improve the Medicare program.

There four charts attached to this testimony.

Chart 1
Almost 75 Percent of Medicare Beneficiaries Have Incomes Under $25,000

(Income Range)

(Percent Beneficiaries in Income Range)

$ 5000

7.3%

$ 5000 - 10000

24.7%

$10000 - 15000

19.0%

$15000 - 20000

13.2%

$20000 - 25000

10.0%

$25000 - 30000

6.7%

$30000 - 35000

4.7%

$35000 - 40000

3.1%

$40000 - 45000

1.9%

$45000 - 50000

2.2%

$50000 +

5.0%

Chart 2

Older Americans Spend Two and One-Half Times More of Their Income on Out-of-Pocket Costs
Than the Non-Elderly

**The elderly (65 and Over) spends 21% of their income on Out-of-Pocket costs than the
non-elderly (Under 65) which spends about 8%.

Chart 3

Modernizing Medicare

Prudent Purchasing

Centers of Excellence

Competitive bidding

Global payment for selected services

Inherent reasonableness authority

Post-acute services payment reform

Improving Choices

Expanded managed care options

Annual pen enrollment for Medigap and managed care plans

Comparative information on all choices

Medigap community rating

Medigap pre-existing condition reform

Standardized additional benefit packages

Revised managed care payment

Beneficiary Protections

Hospital outpatient coinsurance reform

Part B late enrollment surcharge reform

Improved financial protections for managed care
enrollees

New Benefits

Diabetes education

Improved mammography benefits with no cost-sharing

Colorectal cancer screening

Increased payment for vaccines with no cost-sharing

Respite benefit for Alzheimers patients

Chart 4

Characteristics of Medicare Home Health Users

Home Health Users(Percent of Beneficiaries)

All Medicare Beneficiaries(Percent of Beneficiaries)

Incomes

43%

30%

85+

25%

11%

Live Alone

33%

26%

Women

68%

57%

2+ADLs

32%

10%

Poor Health

24%

9%

Over all -- Total Medicare Beneficiaries = 38 Million; with Home Health Users accounting for
about 9%.